Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
ASX 200 expected to rise, 5 ASX shares to watch
The Wild West
Wednesday proved to be another wild day for markets with Australia’s ASX 200 index down over 1% at the open, only to rally 2% and finally finish 5 points down as the session ended.
Over in the US it was the opposite, with stock markets sustaining gains leaving the Dow Jones up 2.2% for the day as the beaten up ‘value’ companies staged a strong recovery.
European markets benefitted from the announcement of a $1.1 trillion fiscal stimulus proposal under which the likes of Germany and France will effectively share the risk of debt used to fund the periphery.
Importantly, some $500 billion will come in the form of grants rather than loans. French carmakers including Renault (EPA:RNO) and Peugeot (EPA:UG) were up over 10% each.
Bulls, Bears and…
Experts continue to pontificate over whether this sustained rally signals the end of the previous bear market, or the continuation of the existing bull as they attempt, with little accuracy, to predict what will happen next.
In my view, the unique nature of COVID-19 means traditional comparisons are moot, hence suggestions this may be a dead cat bounce is overstated.
The ASX200 was supported by the banking sector on Wednesday, as National Australia Bank (ASX:NAB) and Westpac (ASX:WBC) rallied 7.8% and 8.6%, respectively, following a positive report for uber-bear UBS. In fact, NAB announced a near quadrupling of its share purchase plan to $1.25 billion from $500 million.
Similarly, it was the most beaten down ‘value’ companies benefitting from a clear rally out of defensives and materials, into cyclicals, as cement-maker Boral (ASX:BLD) and CSR Ltd (ASX:CSR) both rallied over 7%.
Gold still shines
The gold sector was hardest hit as prices fell as the economic outlook improves.
Northern Star Resources Ltd (ASX: NST) and Newcrest Mining (ASX:NCM) fell over 7% each. However, you might expect short-term rallies as weak economic data continues.
Vitamin-maker Blackmore Ltd (ASX:BKL) entered a trading halt seeking $117 million in fresh capital, yet the company was facing real pressure from its Chinese expansion before COVID-19 so looks a difficult proposition. The political pressure on China continues to increase with the US State Department indicating they see the Hong Kong law changes as inappropriate. Finally, chip-maker Micron (NASDAQ: MU), increased sales forecasts by another 10% to $5.2 billion sending the entire sector, including NVIDIA (NASDAQ: NVDA), higher.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
